HIV is a complex retrovirus containing a number of genes not commonly found in other retroviruses. One of these genes, vpu, which is encoded only by HIV-1 and does not have any known homologues in HIV-2 or SIV, encodes for a small integral membrane protein. This protein consists of a hydrophobic N-terminal transmembrane (TM) domain and a C-terminal cytoplasmic domain. Vpu is phosphorylated by casein kinase II at two highly conserved serine residues. We have in the past identified two biological activities for Vpu: (i) enhancement of particle release; (ii) degradation of CD4. To study the function of Vpu, we constructed a series of mutants and analyzed their effect both with regard to Vpu-mediated enhancement of particle release as well as CD4 degradation. We found that phosphorylation of Vpu was absolutely essential for CD4 degradation while unphosphorylated Vpu still retained at least 50% of wild type activity with regard to particle release. Phosphorylation of Vpu did not affect stability or intracellular distribution of Vpu. Thus, the two biological functions of Vpu are differentially regulated by phosphorylation. To study the importance of the Vpu TM domain for its function, we created a mutant containing a scrambled TM domain, Vpu-ran. This protein was synthesized and integrated into cellular membranes at levels similar to wild type Vpu. As with the Vpu phosphorylation mutant, the effect of the TM mutation was assessed in the two available biological assays. In contrast to the Vpu phosphorylation mutant, Vpu-ran was still capable of inducing CD4 degradation although at a slightly reduced rate. However, this mutant was no longer able to support virus release from the cells. It also became apparent that Vpu functions at different sites in the cell: CD4 degradation necessitates the presence of Vpu in the endoplasmic reticulum (ER) while enhancement of virus release requires the transport of Vpu from the ER to an as yet unknown cellular compartment. Consequently, retention of Vpu in the ER results in enhanced CD4 degradation while at the same time obliterating the effect of Vpu on virion release. In summary, our data suggest that Vpu has two biological functions that are executed in different cellular compartments, rely on different functional domains of Vpu and may thus be mechanistically independent.